Right down Main Street: the market applauds how Broadway turned things around.

The market applauds how Broadway turned things around

Broadway Financial Corp. (NASDAQ: BYFC) hasn't made waves in print. One of the top gainers on the BLACK ENTERPRISE Black Stock Index last year, Broadway, which operates the oldest African American savings and loan west of the Mississippi, seldom appears in the press; there's not a single article on the company in the Los Angeles Times index. And, even though Broadway shares gained 45% last year, coverage by Wall Street analysts is practically nonexistent.

Anonymity hasn't made things any easier for Broadway. After an initial public offering in January of 1996, the company had to take a $614,000 charge against earnings. The reason was based purely on unfortunate timing. Government regulators had just raised the amount of insurance coverage savings and loans are required to take out to protect assets, and Broadway had to play catch-up. The result: a $277,000 loss for 1996, or 31 cents a share of red ink. And, in 1997--the second year Broadway shares traded publicly--one of the thrift's branch offices in South Central Los Angeles was robbed. "To say that 1996 wasn't a good year is an understatement," says Chief Financial Officer Bob Adkins. "But despite the setbacks, we were sure to move back into the profit column," he adds.

The fact is, since being founded in 1946, Broadway has had to cope with its share of adversity. In the early '90s during the Rodney King riots, Broadway's corporate offices were destroyed. The company moved into a trailer on a lot where today it still operates a branch. But as bleak as prospects seemed, the company was confident it had made it past yet another hurdle.

Last year, Broadway more than bounced back. Three-quarters of the way through their fiscal year, the company had posted earnings of 32 cents a share compared with a 31-cents-a-share loss for the same period a year earlier. Thanks to that kind of turnaround, Broadway saw its stock set off on a tear, moving from $9.13 to $13 at press time.

To get back on track, Broadway, which gets about 81% of its revenue from residential loans, raised quality controls and took aggressive measures to rid itself of foreclosed properties by selling off real estate that was on the company's balance sheet but not generating any income. Meanwhile, it also targeted new lending markets, hired more loan officers and, at the same time, introduced adjustable rate mortgages and offered Federal Housing Authority and Veterans' Administration loans, which bring in new customers. Broadway also installed automated teller machines at all four of its branches to keep up with the competition. In addition, the company drew up plans to open its fifth branch. Scott Burford, principal of GBS Financial, a company that follows Broadway, says the thrift's new emphasis on business loans, currently 10% of its business, holds promise. "There are a lot of high-quality businesses in that area that want a banker knocking on their door," he says. And, it doesn't hurt that the California economy has enjoyed a period of solid growth. "Because things are going well, the real estate market here is improving, and more people are shopping for homes," notes Adkins. And the more mortgages there are out there, the more Broadway's assets are put to work boosting the company's bottom line.

"We were constantly trying to position ourselves to have a good performing year," says Adkins. "We've learned that as a public company it's more critical to show performance; that equates with earnings." One sign that things are on their way up: while total assets have risen from $117.1 million to $124.7 million, Broadway has reduced the amount of nonearnings real estate assets on its books to $1 million from $1.8 million in 1995.

While its balance sheets look better, Burford says many institutional investors think Broadways shares am a bargain, selling at 92% of its book value (or roughly what the company is worth). Meanwhile, the average community bank sells at 182% of its book value. "I think this is truly an undiscovered stock," adds Burford.

B.E. BLACK STOCK INDEX

Company                             Exchange: Symbol

American Shared Hospital Services   AMEX: AMS
Ault Inc.                           NASDAQ: AULT
BET Holding                         NYSE: BTV
Broadway Financial Corp.            NASDAQ: BYFC
Caraco Pharmaceutical Labs          OCT BB: CARA
Carson Inc.                         NYSE: CIC
Carver Bancorp                      AMEX: CNY
Envirotest Systems                  AMEX: ENR
Granite Broadcasting                NASDAQ: GBTVK
Pyrocap International               OCT BB: PYOC
United American Healthcare          NYSE: UAH

                                         52-Week

Company                               High     Low

American Shared Hospital Services   $ 2.25   $ 0.63
Ault Inc.                            10.25     4.63
BET Holding                          55.63    25.25
Broadway Financial Corp.             13.75    10.00
Caraco Pharmaceutical Labs            1.75     0.31
Carson Inc.                          15.00     5.88
Carver Bancorp                       17.50     9.63
Envirotest Systems                    8.13     1.44
Granite Broadcasting                 13.25     8.13
Pyrocap International                 3.00     0.03
United American Healthcare            7.88     1.56

                                    Current
Company                             Price(*)     P/E     EPS

American Shared Hospital Services   $ 1.50      8.33   $ 0.18
Ault Inc.                             4.75      7.42     0.64
BET Holding                          54.94     31.76     1.73
Broadway Financial Corp.             13.00     34.62     0.39
Caraco Pharmaceutical Labs            N/A         0     -0.65
Carson Inc.                           7.07        0     -0.25
Carver Bancorp                       14.13        0     -0.27
Envirotest Systems                    6.88        0     -0.44
Granite Broadcasting                 10.75        0     -2.58
Pyrocap International                 0.97        0        0
United American Healthcare            2.69        0     -1.03

(*) As of 1/28/98

Sources: DBC Financial; Yahoo Quotes